Low Mortgage Rates Not Enough to Revive Real Estate Market
When mortgage rates rose toward 8% last fall, the housing market that had boomed in the pandemic era slowed to a crawl, with demand hitting the lowest level in nearly three decades. However, the average rate for a 30-year fixed mortgage is now more than a percentage point lower than its October peak, fueling hopes that more sellers might be willing to make a move and ease the ongoing inventory shortage.
Mortgage Demand Falls to Fresh 30-Year Low
Despite the drop in rates, fresh data indicates that the real estate market is actually deteriorating further. The Kobeissi Letter posted analysis from Reventure Consulting, stating that mortgage demand fell last month to a fresh 30-year low, down 14% from a year ago and 40% from pre-pandemic levels. This decline comes as available home supply is still down a stunning 34.3% from pre-pandemic levels.
Affordability Crisis Persists
The reluctance of homeowners to move can be attributed to several factors. While lower interest rates are desirable, many homeowners still have mortgage rates below 5%, providing a financial disincentive to move. Additionally, the soaring prices of homes make the affordability crisis worse, with U.S. home prices hitting a new record high in November for the 10th consecutive month.
Significant Improvement in Mortgage Rates Needed
Realtor.com economist Jiayi Xu highlights the need for a more substantial improvement in mortgage rates to attract more sellers to the market. Without a sufficient supply of homes for sale, there is a possibility that prices may start climbing again, perpetuating the cycle of high home prices. The Kobeissi Letter predicts that rates need to fall significantly, reaching 5% or lower, before the housing market sees real movement again.
Source: FOX Business
